Exhibit 10.1
ASSIGNMENT AGREEMENT
THIS made this 5th day of August,
2004.
BETWEEN:
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E-COM
TECHNOLOGIES INC. , a
Nevada company whose address is Suite 1925, 200 Burrard Street,
Vancouver, British Columbia, V6C 3L6 Canada
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(hereinafter
called “E-Com”)
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OF THE FIRST PART
AND:
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FORT SCOTT
ENERGY CORP., a Nevada
company whose address is 5548 Parthenon Place, West Vancouver,
British Columbia, V7W 2V7 Canada
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(hereinafter
called “Fort Scott”)
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OF THE SECOND PART
WHEREAS
E-Com wishes to acquire from Fort
Scott, and Fort Scott wishes to assign to E-Com, its interest in
the Participation Agreement dated April 26, 2004 (the “
Participation Agreement ”) between Fort Scott and
Cedar Strat Corporation, on the terms and conditions as described
in this Agreement;
NOW THEREFORE
this Agreement witnesseth that, for
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by E-Com and Fort Scott, the parties
covenant and agree with each other as follows:
1.
DEFINITIONS
1.1 In
this Agreement:
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(a)
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“
accredited investor ” has the meaning ascribed in
Regulation D of the US Securities Act of 1933.
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(b)
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“
Agreement ” means this assignment agreement including
all attached schedules;
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(c)
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“
AMI ” means the Area of Mutual Interest as set out in
the Participation Agreement attached as Schedule “A”
hereto;
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(d)
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“
Assets ” means the Petroleum and Natural Gas Rights
and Leases currently held by Fort Scott via its wholly owned
subsidiary Frontier Explorations Ltd. (Frontier), which for greater
certainty are set out in Schedule “C”
hereto;
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(e)
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“
Asset Data ” means all information, data and
projections respecting the Assets as further defined in section
12.1 and all such other data as may be generated in respect of
determining the potential for the existence of oil and gas on the
Lands under the Participation Agreement;
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(f)
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“
Closing ” means the closing of the transactions
contemplated in this Agreement;
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(g)
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“
Closing Date ” means August 6, 2004;
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(h)
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“
Consideration Shares ” means up to 10,000,000 common
shares, subject to adjustment, in the capital of E-Com payable in
instalments as set out in this Agreement;
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(i)
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“
Frontier ” means Frontier Exploration Ltd., a wholly
owned subsidiary of Fort Scott;
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(j)
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“
Lands ” means the lands comprising the AMI;
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(k)
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“
Leases ” means collectively the leases, reservations,
permits, licenses, or other documents of title held by Fort Scott
via its wholly owned subsidiary Frontier Explorations Ltd. which
are as set out in Schedule “C” hereto and have been
acquired in the AMI pursuant to the terms of the Participation
Agreement, including any renewals or extensions thereof, by virtue
of which the holder is entitled to enter, access, drill for, win,
take, own or remove the leased substances within, on or under the
Lands;
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(l)
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“
NRI ” means a net revenue interest;
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(m)
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“ oil
and gas ” includes all minerals and hydrocarbon
substances regardless of gravity or phase (including coal and
coalbed gas) including, but not limited to condensate, helium,
hydrogen, nitrogen and other gases;
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(n)
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“
ORRI ” means an overriding royalty interest;
and
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(o)
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“
Petroleum and Natural Gas Rights ” means the entire
legal interest of Fort Scott in and to the Leases.
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The following
Schedules are attached to and form part of this
Agreement:
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Schedule
“A” – Participation Agreement
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Schedule
“B” – Share Sale Agreement / Frontier
Explorations Ltd.
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Schedule
“C”– List of Leases held by Frontier
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1.3 The
headings of the clauses of this Agreement are inserted for
convenience of reference only and shall not affect the meaning or
construction of the Agreement.
1.4 Whenever
the singular or masculine or neuter is used in this Agreement, they
shall be interpreted as meaning the plural or feminine or body
politic or corporate, and vice versa, as the context
requires.
1.5 If
there is any conflict or inconsistency between the provisions of
this Agreement and those of a schedule attached hereto, the
provisions of this Agreement shall prevail. If any term or
condition of this Agreement conflicts with a term or condition of
any Lease, or the requirements of any governmental authority or
agency having jurisdiction, then the term or condition of such
Lease or governmental authority or agency shall prevail and this
Agreement shall be deemed to be amended to the extent
required.
2.
PURCHASE AND SALE
2.1 E-Com
hereby agrees to accept an assignment of the Participation
Agreement and the Leases from Fort Scott, excepting the 2% ORRI
retained by Fort Scott in and to the Lands and all Leases currently
held by Fort Scott thereon by Frontier, or hereinafter acquired
directly or indirectly by E-Com thereon, and Fort Scott hereby
agrees to the assignment to E-Com in consideration for; the
issuance of 500,000 post consolidated common shares in the Capital
Stock of E-Com on the execution of this agreement, and the
reservation and issuance of the Consideration Shares, and the
issuance of the Convertible Debenture set out in paragraph 2.2
hereof. In order to take receipt of the Consideration Shares, Fort
Scott represents that it is, or at the time of the issuance of the
Consideration Shares will be, an accredited investor and will
execute and deliver a subscription form in the form and containing
the terms customary for such type of form.
2.2 In
consideration of Fort Scott transferring to E-Com the shares (the
“Frontier Shares”) held by it in Frontier, and, as a
result, the Leases held by Frontier as set out in Schedule
“C” hereto, E-Com will issue to Fort Scott a Promissory
Note and Convertible Debenture in the principal amount of $500,000
usd (the “Debt”). The Convertible Debenture will bear
interest at a rate of 7% per annum and will further entitle Fort
Scott, at its sole election, to convert payment of the principal
amount and interest accruing thereon, in whole or in part, into
Units of E-Com. The conversion rate under the Convertible Debenture
will be set at $0.25 usd per Unit, each Unit entitling Fort Scott
to the issuance of one common share in the capital stock of E-Com
and one half of one warrant, with each whole warrant entitling Fort
Scott to acquire one additional common share at $0.50 per share.
Fort Scott shall be required to make its election to accept any
payment of the Debt and any interest accruing thereon, in whole or
in part, or to convert any such payment under the Convertible
Debenture within 48 hours of Fort Scott being presented with
payment of the Debt, in whole or in part, by E-com. As security for
the payment of the Debt and interest accruing thereon, Fort Scott
will retain ownership of the Frontier Shares until the Debt and all
interest accruing thereon has been paid in full or such payment has
been converted in to Units as the case may be.
3.
PAYMENT OF PURCHASE PRICE
3.1 The
collective purchase price payable by E-Com to Fort Scott pursuant
to clause 2 of this Agreement shall be paid as follows:
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(a)
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Consideration Shares: For each 10 million barrels of proven reserves
on the Lands, E-Com will issue to Fort Scott 1,000,000 of the
Consideration Shares, up to a maximum of 10,000,000 Consideration
Shares;
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(b)
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Fort
Scott’s retained 2%ORRI: Fort Scott will at all times retain and be
vested with a 2% ORRI on the Lands, such that upon the fulfillment
of the obligations set out and as otherwise described in the
Participation Agreement, E-Com will have earned a 80.5% NRI in the
Lands, and Cedar Strat will be vested with a 5% ORRI;
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(c)
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The issuance of
500,000 post-consolidated common shares in the Capital Stock of
E-Com on the execution of this agreement, and the reservation and
issuance of the Consideration Shares; and
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(d)
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A Convertible
Debenture and Promissory Note in favour of Fort Scott in the
principal amount of $500,000 usd at 7% per annum, convertible in
accordance with paragraph 2.2 hereof.
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3.2 As
set out in the Participation Agreement and this Agreement, Fort
Scott will, subject to the fulfillment of its obligations
thereunder, be vested with a 82.5% ORRI in the Lands.
3.3 In
consideration of, and upon the fulfillment of the obligations of
Fort Scott under the Participation Agreement, all of which are to
hereby assigned to and assumed by E-Com, and the performance by
E-Com the terms and conditions of this Agreement, E-Com will become
vested with a 80.5% ORRI in the Lands. Cedar Strat however retains
a 5% back in working interest which may be adjusted upwards to as
much as a 12.5% back in working interest should E-Com elect not to
proceed with the drilling election as set out in the Participation
Agreement.
4.
CONVEYANCE AND ASSIGNMENT OF LEASES
4.1 Upon
payment of the Purchase Price, including either the payment of the
Debt and all interest accruing thereon or the conversion of such
Debt and interest under the Convertible Debenture, as the case may
be, Fort Scott shall deliver to E-Com a share certificate in the
name of E-com, representing 100% of the issued and outstanding
shares in the capital of Frontier. Up to the time of such transfer
E-Com shall do all such acts and pay all rentals and other payments
as are required to keep the Leases in good standing. Up to the time
of such share transfer Frontier will not, unless E-Com is in breach
of the terms of this Agreement, otherwise sell, transfer or
otherwise dispose of or encumber the Leases.
4.2
Subject to paragraph 4.1 hereof, Fort Scott shall also provide
E-Com with any specific assignments, transfers or further
assurances as E-Com may reasonably require to obtain title to any
Leases or Assets purchased herein, but no such documents shall
require Fort Scott to assume or incur any obligation, or to provide
any representation or warranty, beyond that contained in this
Agreement. Fort Scott shall co-operate with E-Com as reasonably
required to secure execution of such documents by parties other
than Fort Scott and E-Com.
4.3 All
costs incurred in registering any conveyances and assignment of
title to the Assets, and all costs of preparing and registering any
further assurances required to convey the Assets, shall be borne by
E-Com.
5.
ADJUSTMENTS AT CLOSING
5.1
benefits and obligations of any kind and nature accruing, payable
or paid in respect of the Assets, including maintenance,
development and operating costs and proceeds from the sale of
production (if applicable), shall, subject to the provisions of
this Agreement, be borne by Fort Scott up to the execution of this
Agreement. All benefits and obligations of any kind and nature
accruing, payable or paid in respect of the Assets, including
maintenance, development and operating costs and proceeds from the
sale of production (if applicable) after the execution of this
Agreement are the responsibility of E-Com.
6. FORT
SCOTT’S REPRESENTATIONS
6.1 Fort
Scott represents and warrants to E-Com that:
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(a)
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Each of Fort
Scott and Frontier are, and at the Closing Date shall continue to
be, corporations duly organized, validly existing and in good
standing under the laws of the jurisdiction of incorporation and
duly registered and authorized to carry on business in all
jurisdictions where the Lands are located;
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(b)
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Frontier is a
wholly-owned subsidiary of Fort Scott;
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(c)
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All necessary
corporate action has been taken by Fort Scott and Frontier to
authorize the execution, delivery and performance of this
Agreement;
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(d)
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This Agreement
has been duly executed and delivered by Fort Scott and, if properly
executed and delivered by E-Com, constitutes a valid and binding
obligation of Fort Scott and Frontier enforceable in accordance
with its terms, and subject to the qualification that such
enforceability may be limited by bankruptcy, insolvency,
liquidation, reorganization or other laws of general application
relating to or affecting rights of creditors;
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(e)
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To the best of
the information, knowledge and belief of Fort Scott, there are no
claims, proceedings, actions or lawsuits in existence, contemplated
or threatened against or with respect to the Assets or the
interests of Fort Scott therein;
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(f)
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To the best of
the information, knowledge and belief of Fort Scott and Frontier,
all royalties and rentals due under the said Leases and payable by
Fort Scott or Frontier have been properly and timely paid;
and
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(g)
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Neither Fort
Scott nor Frontier have encumbered or alienated their interest in
the Assets, and to the best of Fort Scott’s knowledge the
Assets are now, and will be at the Closing Date, free and clear of
all liens, encumbrances and adverse claims created by, through or
under Fort Scott except as and if set forth the Participation
Agreement. Except as expressly stated in this sub-clause, Fort
Scott does not make or give any representation or warranty as to
its title to the Assets.
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7.
E-COM’S REPRESENTATIONS
7.1
E-Com represents and warrants to and with Fort Scott
that:
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(a)
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at the Closing
Date E-Com shall continue to be, a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and duly registered and authorized to
carry on business in all jurisdictions in which the Lands are
located;
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(b)
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all necessary
corporate action has been taken by E-Com to authorize the
execution, delivery and performance of this Agreement;
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(c)
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this Agreement
has been duly executed and delivered by E-Com and, if properly
executed and delivered by Fort Scott, constitutes a valid and
binding obligation of E-Com enforceable in accordance with its
terms, and subject to the qualification that such enforceability
may be limited by bankruptcy, insolvency, liquidation,
reorganization or other laws of general application relating to or
affecting the rights of creditors;
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(d)
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E-Com shall
assume all of Fort Scott’s obligations under the
Participation Agreement and the Leases and shall fully satisfy the
same, and hereby pledges all of its interest received herein from
Fort Scott to and for the benefit of Fort Scott as security for the
full and complete performance on all of its obligations and
covenants made herein; and
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(e)
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E-Com is
relying upon its own investigations concerning the title to and
fitness of the Assets and is not relying upon any representations,
warranties or statements in any form of Fort Scott except those
contained in sub-clause 6.1(g) of this Agreement.
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8.
MAINTENANCE OF BUSINESS
8.1 Until
the Closing Date, Fort Scott shall continue to maintain the Assets
in a proper and prudent manner in accordance with generally
accepted industry practices.
8.2 From
the date hereof until the Closing Date, Fort Scott and Frontier
shall not enter into any obligations or commitments out of the
ordinary course of business with respect to the Assets, except as
may be reasonably necessary to comply with the terms of the
Participation Agreement, or to preserve the Assets or title to the
Assets. Until the Closing Date, Fort Scott and Frontier shall not,
without the prior written consent of E-Com, propose or initiate the
exercise of any right or option relative to or arising as a result
of the ownership of the Assets, propose or initiate any operations
on the Lands which have not been commenced or committed to by Fort
Scott on the date hereof except that Fort Scott may propose or
initiate any operations on the Lands for, and may propose or
initiate the exercise of any right or option relative to, the
preservation of any of the Assets.
9.
CONDITIONS TO THE CLOSING
9.1 It
is a condition precedent of the Closing that any and all necessary
regulatory or governmental approvals and consents required to
permit the transaction to be completed shall have been obtained.
Each of the parties covenants and agrees with the other to use all
reasonable efforts to obtain any such approvals and
consents.
9.2 It is
a condition of the sale of Closing, for the benefit of Fort Scott,
which may be waived at the discretion of Fort Scott, that the
representations and warranties of E-Com in this Agreement remain
true at the Closing Date.
9.3 It is
a condition to the purchase of the Closing, for the benefit of
E-Com, which may be waived by E-Com, that the representations and
warranties of Fort Scott in this Agreement remain true at the
Closing Date.
10.
THIRD PARTY RIGHTS AND CONSENTS
10.1 If
any of the Assets are subject to a preferential right of purchase
or similar restrictions, or require the consent of any third party,
which are in either case made effective by virtue of this
Agreement, then Fort Scott shall promptly serve all notices as are
required under the preferential purchase or consent provisions.
Each such notice shall include a request for a waiver of any
preferential or similar right to purchase any of the Assets and for
the granting of any consent that may be required. E-Com may not
waive the existence or operation of any preferential or similar
right to purchase any of the Assets. If the holder of any
preferential or similar right to purchase any of the Assets
exercises such right, or a third party required to give consent
refuses to give such consent, then such right or refusal shall not
be considered a defect of title and such Assets shall be excluded
from the purchase and sale herein, and the purchase price to be
paid by E-Com to Fort Scott pursuant to clause 2 hereof shall be
reduced by an amount to be negotiated by the parties acting
reasonably and without delay.
11.
AMOUNTS OWING AFTER CLOSING DATE
11.1 Any
adjustment amounts owing to Fort Scott by E-Com after the Closing
Date herein and remaining unpaid shall bear interest from the
Closing Date to the date of payment at the rate of 2% per annum
above the prime lending rate offered by HSBC to its major
commercial clients by the main branch in Seattle, Washington. For
greater clarity, such adjustment amounts do not include any
payments regarding the purchase price.
12.
DATA/ PROJECTIONS
12.1
There is included among the materials pertaining to the Assets to
be delivered or made available by Fort Scott to E-Com pursuant to
this Agreement, including evaluations, projections, reports,
interpretative or non-factual materials prepared by or for or
received by Fort Scott (the “Asset Data”). E-Com hereby
forever releases and discharges Fort Scott and Frontier from any
claims and all liability to E-Com or E-Com’s assigns and
successors as a result of the use or reliance upon such Asset Data.
With respect to all materials, E-Com confirms that it is not
relying upon any representations or warranties of Fort Scott except
as specifically set forth in sub-clause 6.1(g) of this Agreement.
Without limiting the foregoing, E-Com agrees that it shall rely
solely on its own appraisal and estimates as to the quantum or
value of the Assets and shall rely solely on its own geological and
engineering interpretations and analyses related
thereto.
13.
INDEMNITY
13.1 From
and after the date hereof, E-Com will assume, perform and discharge
all of the obligations and liabilities of Fort Scott in respect of
the Participation Agreement and the Leases and agrees to indemnify
and save harmless Fort Scott and Frontier from and against all
claims, actions, suits, proceedings, demands, assessments,
judgments, charges, penalties, costs, and expenses (including the
full amount of any legal expenses invoiced to Fort Scott) made or
claimed against or suffered or incurred by Fort Scott resulting
from or arising out of or in connection with the failure by E-Com
to assume, perform and discharge as aforesaid.
13.2 In
addition to the foregoing, E-Com shall indemnify and hold harmless
Fort Scott and Frontier from and against any and all liability
relating to operations or reclamation on the Lands.
13.3
Such indemnities shall be deemed to apply to, and shall not merge
in, all assignments, transfers, conveyances, novations and other
documents, including the General Conveyance: Assignment of Leases,
conveying the Assets to E-Com. Each party shall have full right of
substitution and subrogation in and to all covenants and warranties
by others previously given or made in respect of the Assets or any
part thereof.
13.4
E-Com will observe and perform all obligations to be carried out by
Fort Scott under the Participation Agreement as if it was an
original party thereto. In the event E-Com is notified of, or is
knowingly in breach of any of the terms, conditions or obligations
arising under the Participation Agreement or this Agreement, E-Com
will immediately upon becoming aware of such breach, and at all
times prior to the expiration of any curative period, advise Fort
Scott of the nature of the breach. Fort Scott shall have the right
to cure such breach without notice to, or the consent of E-Com. If
Fort Scott acts to cure the alleged or actual breach, then E-Com
shall within 30 days of any such curative action reimburse Fort
Scott for any and all direct and indirect cost, expenses, and fees
or otherwise paid by or on its behalf, plus a penalty of equal to
an additional 25% of such total amount.
14.
WAIVER
14.1 No
waiver by any party of any breach of any of the terms, conditions,
representations or warranties in this Agreement shall take effect
or be binding upon that party unless the waiver is expressed in
writing under the authority of that party and any waiver so given
shall extend only to the particular breach so waived and shall not
limit or affect any rights with respect to any other or future
breach.
15.
FURTHER ASSURANCES
15.1 At
the Closing Date and thereafter as may be necessary, the parties
shall execute, acknowledge and deliver such other instruments and
take such other action as may be reasonably necessary to carry out
their obligations under this Agreement.
16.
ASSIGNMENT
16.1 Prior to the Closing Date,
neither party may assign its interest in or under this Agreement
without the prior written consent of the other party hereto, except
as may be required by Fort Scott to comply with any preferential
rights as described in clause 10 hereof.
17.
NOTICE
17.1 All
notices required or permitted or with respect to this Agreement
shall be in writing and shall be deemed to have been properly given
and delivered when delivered personally or by courier, or when sent
by registered mail (or by any other like method by which a written
and recorded message may be sent), with all postage or charges
fully prepaid, and addressed to the parties hereto, respectively,
as follows:
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To
E-Com:
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Suite 1925, 200
Burrard Street
Vancouver, British Columbia
V6C 3L6
Attention: Donald Sharpe
Facsimile: 604.693.0179
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To Fort Scott:
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5548 Parthenon Place
Vancouver, British Columbia
V7W 2V6
Attention: Richard Coglon
Facsimile: 604.638.3525
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Any notice so mailed shall be
deemed to have been given to and received by the addressee four (4)
days after the mailing thereof, Saturdays, Sundays and statutory
holidays excepted, provided that neither party shall use such mails
for the giving of notice during the term of any strike or
disruption, or threatened strike or disruption of postal
service.
Either party may change its
address for the purpose hereof by directing a notice in writing of
such change to the other party at its above address.
18.
GOVERNING LAW
18.1 This
Agreement shall in all respects be subject to and be interpreted,
construed and enforced in accordance with the laws in effect in the
State of Nevada. Each party accepts the jurisdiction of the courts
of the State of Nevada and all courts of appeal
therefrom.
19.
ENTIRE AGREEMENT
19.1
This Agreement supercedes all previous agreements and states the
entire agreement between the parties concerning the purchase and
sale of the Assets.
19.2
This Agreement may be amended only by written instrument signed by
Fort Scott and E-Com.
20.
ENUREMENT
20.1 This
Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF the parties
have executed this Agreement in accordance with their respective
requirements therefor as of the date first above
written.
E-COM TECHNOLOGIES
INC.
Per: /s/signed
Authorized Signatory
FORT SCOTT ENERGY
CORP.
Per: /s/signed
Authorized Signatory
SCHEDULE “A”
This is Schedule "A" annexed to
and forming part of the Assignment Agreement between E-Com
Technologies Inc. and Fort Scott Energy Corp. ,
dated the 5th day of August, 2004.
PARTICIPATION AGREEMENT
Diamond Play, Nevada
This Participation Agreement for
the Diamond Play, Nevada is entered into and made effective this
26th day of April, 2004, by and between Cedar Strat Corporation, a
Nevada corporation (hereinafter “Cedar Strat”), and
Fort Scott Energy Corporation, a Nevada corporation (hereinafter
“Participant” or “Fort Scott”).
RECITALS
The parties recite and declare as
follows:
A.
WHEREAS, in conjunction with this Agreement, the parties have
entered into a Confidentiality Agreement, which is incorporated
herein by reference.
B.
WHEREAS, Cedar Strat has developed at great time and expense
certain geological, geophysical, technical, contractual and other
data and information, including well logs, interpretative maps,
land maps, license from third parties and other information related
to the area included within the geographical boundaries of the
Confidential area, as set forth in Exhibit “A” of the
Confidentiality Agreement and described here as Township 15 N,
Range 50 E through Township 33 N, Range 58 E from the Mount Diablo
Meridian, Acreage lying within Elko, Eureka, Nye and White Pine
counties of Nevada. Furthermore, Fort Scott covenants not to
compete with Cedar Strat within the boundaries set forth in this
paragraph without specific prior written approval, such approval
not to be unreasonably withheld.
C.
WHEREAS, Cedar Strat has offered Participant the opportunity to
participate in its Diamond Play (hereinafter “Play”),
which lies within the boundaries of the non-compete area, as set
forth in Exhibit “A” of the Confidentiality
Agreement.
D.
WHEREAS, Participant has agreed to participate in the Play in
accordance with the terms set forth in this Agreement and in the
referenced Confidentiality Agreement.
E.
WHEREAS, Participant acknowledges that in agreeing to participate
in the Play, not acting as an employee or agent of Cedar Strat, but
as a separate entity which desires to participate with Cedar Strat
in development of the Play.
NOW, THEREFORE, in consideration
of the mutual covenants, conditions and promises contained herein,
and other good and valuable consideration, the receipt and
sufficiency that are hereby acknowledged, the parties agree as
follows:
Section 1. Establishing an
Area of Mutual Interest (AMI):
Cedar Strat and Fort Scott will
establish an Area of Mutual Interest (AMI) surrounding the Diamond
Play, as detailed in Exhibit “A” hereof. The area
within the “Blue” boundaries constitute the AMI. Areas
within the “Red” portion of the AMI boundary are
subject to the right of first refusal by the Major Independent
which language is included in Exhibit “C”. The
boundaries of this “Red” portion of the AMI and right
of first refusal by the Major Independent Oil and Gas Company is
more fully described in Exhibit “B”. Acquisition of
acreage within the “Blue” area of the AMI are also to
be governed by the rights previously granted the Major Independent
Oil and Gas Company under the terms discussed in Exhibit
“C”.
Section 2. Participant
Acquisition of Land/Leases:
Cedar Strat will identify the
Bureau of Land Management (BLM) leases critical to the project,
make recommendations to Fort Scott for additions or deletions thus
maximizing the benefit of the acreage held, recognizing a need for
protection acreage in addition to structure acreage (the
“initial acreage”). The “initial acreage”
is that acreage which has previously been nominated and passed
through a BLM lease sale auction and is available at the BLM for
lease. Cedar Stat will represent Fort Scott at the BLM lease sales
if desired.
Fort Scott agrees to advance such
monies as are required to acquire the “initial
acreage”, as the case may be (the “initial
payment”) and to further assume the obligation to pay the
ongoing rentals on all such “initial acreage”
(hereafter referred to as “subsequent payments”) for a
period of two (2) additional years, excluding the “initial
payment”. It is estimated that the “initial
payment” will be in the order of $400,000 and that each
additional annual “subsequent payment will be in the order of
$400,000. The leases will be held in the name of Fort Scott Energy
Company or an entity designated by Fort Scott.
Fort Scott will also assume the
obligation to advance such monies as may be required to fund the
purchase of the “after acquired acreage” which,
assuming requires payment of a $2.00 per acre bonus fee and a $1.50
per acre rental fee, is estimated to total $460,000 (hereinafter
referred to as the “Initial subsequent acreage fee”. In
addition, Fort Scott will assume the obligation to pay the annual
rental on such “after acquired acreage” for a period of
two (2) additional years excluding the payment of the
“initial subsequent acreage fee”. The “after
acquired acreage” is that acreage which must be or has been
nominated but has not passed through a BLM lease sale
auction.
It is recognized that the bonus
bid to the BLM may exceed the $2.00 per acre level. Fort Scott will
bid as aggressively as they feel may be necessary to acquire the
“after acquired acreage”. Should Cedar Strat be
representing Fort Scott at such BLM auction, the level of potential
bid will be established prior to the date of the
auction.
It is recognized that certain
acreage may have been previously leased or owned by outside
entities, for which negotiations to control under this agreement
will be embarked upon. All acreage acquired within the AMI will be
entered into under the same terms of this agreement. If acreage of
third party control must be acquired under terms that infringe upon
this agreement, both parties will work as reasonably possible to
acquire and control this acreage for the group.
The “Red” area
designated in Exhibit “A” will be the priority area for
acquisition of the primary acreage. Fort Scott will be under the
same Right of First Refusal clause for this project as Cedar Strat
is with the Major Independent Oil and Gas company. (see Exhibit
“C”).
Section 3. Ownership of data
and use of data in Play:
Cedar Strat will retain ownership
of all data whether currently owned, purchased, licensed or
generated by Cedar Strat, and as may be hereafter generated, or
acquired as part of the exploration programs set out in section 4
hereof. Cedar Strat will, at no additional cost to Fort Scott et
al., license its proprietary and other relevant data to Fort Scott
and any other participant for the duration of the Play. Certain
data that Cedar “Strat licenses frorl-i third pat-ties will
remain in the name of Cedar Strat but utilized for the efficient
development of the Play. All data in the possession or control of
Cedar Strat relevant to the Play will be made available to the
Participant for study and analysis on a time is of the essence
basis. All maps, data and graphs generated or purchased will be
used for the efficient development of drill sites, the marketing of
the Play when appropriate, or drilling as mutually agreed
upon.
Cedar Strat will keep newly
developed data over the Diamond Play and the AMI confidential, on a
case by case basis for each lease involved, for a period of a) two
years from the effective date of this agreement on acreage Fort
Scott chooses to farm out without further participation, b) five
years from the effective date of this agreement on acreage Fort
Scott proceeds for test well and development drilling, or c) until
such time as Fort Scott elects to relinquish a specific lease. Data
over leases relinquished will be free of liens, claims, overrides
and back-in interests and will be available for marketing such
relinquished leases to additional third party industry
participants.
Fort Scott has anticipated the
shooting or acquisition of additional seismic data, other than the
Exxon Seismic data, as part of the exploration and development of
this Play. Fort Scott shall retain ownership of that data. Fort
Scott will, at no additional cost to Cedar Strat et al., license
its proprietary seismic data to Cedar Strat for the duration of the
Play.
The ownership of data is more
fully detailed as a part of Exhibit “E”'.
Section 4. Exploration of the
Diamond Pl@a .
Fort Scott will, in each of the
first two years of the agreement, commit to expending the
exploration monies as presented in Exhibit “D” which
are required to better understand, explore and assess the viability
of the lands comprising the Diamond Play for the existence of
hydrocarbons and for prospective drill targets. The details of each
such task is subject to further delineation as may reasonably be
required by the parties going forward. The relevant geologic data
which will be developed, analyzed and used for this exploration
effort and delivered to Fort Scott by Cedar Strat will include but
is not limited to:
- New Geologic mapping, including
field work and office/computer plotting and analysis
- Biostratigraphic sample
collection — Paleontologist analysis,—Well
Studies,—Aeromagnetic and Gravity Surveys,
- Attempt for Acquisition and
processing of Exxon seismic Data
- Management of Prospect
Development
- Development of cross
sections,
- Map production,
- Home Office support,
The cost of the Exploration
Program is budgeted to be $1,500,000 as outlined in Exhibit
“D”. Fort Scott will work with Cedar Strat under the
terms of the Management Services Agreement as described in Exhibit
“D” for the exploration and development of the Diamond
Play.
In the event of additional
expenses not reasonably contemplated in this agreement, Participant
will use its best efforts to fund the purchase, license or expense,
with such additional advances being repaid in accordance with
Section 6.1(d) hereto (the “additional expenses”). Such
items of additional expense may include but are not limited to the
acquisition of additional seismic data, sales trips to market
working interest shares on behalf of Fort Scott, status report
trips and licenses from third parties for data to be held by
Participant redundant to that held by Cedar Strat for exploration
activities. All such additional expenses shall be subject to the
prior written approval of Fort Scott and shall be reimbursed by
Fort Scott as to 100% in accordance with section 6.1(d) or 6.2(b),
as the case may be.
Section 5. Relinquishment of
land/leases by Participant in the Diamond Play:
Leases or land will not be
relinquished without the mutual consent of Cedar Strat and Fort
Scott. In the event Fort Scott elects to surrender or abandon the
Leases, or any portion thereof, without prior approval of Cedar
Strat, Fort Scott shall give Cedar Strat 60 day’s prior
written notice thereof. Cedar Strat shall thereafter have the
option to require Fort Scott to reassign that portion thereof which
Fort Scott wishes to surrender or abandon. This abandonment will be
without liens, claims, royalties, back-in interests or any such
encumbrances. Cedar Strat will receive the assignment without
liability other than paying the future rentals. Cedar Strat will be
allowed to seek after and acquire other industry participants to
develop said area. Fort Scott will immediately turn over the data
and work product created by Cedar Strat or licensed by Cedar Strat
in the development of said leases.
Section 6. Election by
Participant to Develop the Diamond Play:
Assuming that the work on the
Play is being acquired, processed and assessed in a timely manner
which allows Fort Scott and Cedar Strat to determine the viability
of the Diamond Play for hydrocarbons and the identification of
prospective drilling targets, Fort Scott may then at any time
during the initial two years of the agreement, elect in writing
(the “election”) to proceed with the development of the
Diamond Play. If Fort Scott’s ability to assess the viability
of the Play is delayed due to delays outside of its control, the
election will be extended for such period of time as the parties
may agree acting reasonably.
Section 6.1
